Midwest Farmland Values Gain as Record Crop Prices Boost Demand

By Jeff Wilson -
Nov 15, 2012

Farmland values in five Midwest
states rose 13 percent in the third quarter from a year earlier
as record corn and soybean prices spurred demand from farmers
and investors, the Federal Reserve Bank of Chicago said.

Higher commodity prices and crop insurance more than offset
losses from the worst drought in 56 years, boosting farm income
and demand for land in Iowa, Illinois, Indiana, Michigan and
Wisconsin, the Fed said today in a report. Land values rose 5
percent from the second quarter, and 36 percent of the 223
bankers surveyed forecast higher values in the fourth quarter.
Just 1 percent of respondents expected lower prices.

“The drought does not seem to have derailed bankers’
anticipation of further upward movement in farmland values,”
David B. Oppedahl, a business economist at the Federal Reserve
Bank of Chicago, said in the report. “Survey results indicated
that the impetus for higher farmland values actually
strengthened during the third quarter of 2012.”

The drought in the U.S., the world’s biggest grain and
oilseed exporter, sent corn and soybean prices to records
earlier this year and wheat to a four-year high. Incomes for
crop farmers were forecast to rise in the next six months,
according to 48 percent of survey respondents, while 72 percent
of bankers said earnings will fall for hog and cattle producers.

Farmland values in Iowa, the biggest producer of corn and
soybeans, rose 18 percent from a year earlier, according to Fed
data. Illinois gained 15 percent, Indiana rose 11 percent,
Wisconsin increased 8 percent, and Michigan advanced 7 percent.
More than half of the bankers said farmers will seek to buy more
land in the next six months, and 31 percent forecast improved
demand from investors.

Demand Undiminished

The drought hasn’t slowed farmland demand or reduced
agricultural income, said Loyd Brown, the president of Hertz
Farm Management Inc. in Nevada, Iowa, which manages more than
500,000 acres in nine states. Rain in August and September
boosted yields more than expected, while high crop-insurance
payments preserved farm income, he said.

“Many farmers are going to have their best year they have
ever had,” Brown said in a telephone interview yesterday.
“There’s been an acceleration in sales, and there’s still a lot
of firepower looking to buy land.”

An index of demand for non-real-estate loans in the
district fell during the quarter compared with a year earlier,
even as interest rates shrank to a record, the bank said in the
report. Repayment rates on farm loans, loan renewals and
extensions improved, and loan volume was expected to increase in
the fourth quarter, the survey showed. Responding bankers
predicted forced sales or liquidations of farm assets among
financially-stress farmers in the region to edge down in the
next three to six months.

The average interest rate on real-estate loans on Oct. 1
was 4.86 percent, according to the Fed. About 7 percent of
bankers surveyed required higher collateral to qualify for
loans, while less collateral was required by 2 percent.